Citi starts coverage of these ’safe haven’ food distributor stocks

Investing.com -- Citi initiated coverage on U.S. food distributors, calling the group a “relatively safe haven for macro and tariff concerns” and issuing Buy ratings on Performance Food Group (NYSE:PFGC) and US Foods. Sysco (NYSE:SYY) received a Neutral rating.

In its note, Citi cited several favorable industry dynamics, including “restaurant wallet share as a likely buffer to macro risks,” “limited tariff-related risk,” and “manageable commodity inflation and a stabilized labor environment.” 

The firm also highlighted the benefits of a fragmented industry, with the top three players controlling only about 40% of the market.

Citi sees PFGC as “firmly in positive feedback loops,” driven by mix shifts that the market has not fully appreciated. 

These include “accelerating gross margin gains in the core foodservice segment” and favorable dynamics within its convenience segment, such as “declining lowest margin nicotine sales” and “faster growing higher margin foodservice sales.” The firm set a $121 target price for PFGC.

Citi also rated USFD a Buy, with a $95 price target. The company “is firmly in the foodservice feedback loop,” showing “accelerating growth in gross profit per case” and “steady leverage vs operating expenses.” 

Analysts said USFD has “a credible track record” and is well-positioned to “outrun the price transparency/switching cost challenges” due to its leadership in digital initiatives.

Sysco, rated Neutral with a $78 target, could see relief from easier year-over-year comparisons, but Citi warned that “compensation changes/associated turnover will still outweigh” near-term benefits. 

However, it remains optimistic about SYY’s international segment in the long run.